Property

Govt moves to cool housing market

The government is looking at formalising Reserve Bank proposals to rein in credit growth, including restrictions on loan-to-value ratios, Finance Minister Bill English said today.

Wednesday, February 27th 2013

In a speech to the Auckland Chamber of Commerce today, English said that over the next few weeks, the Reserve Bank will consult on its proposals to use more tools to help ensure financial stability.

Under these proposals, the Reserve Bank will have a greater ability to influence the amount of lending done by banks and other financial institutions.

This might include requiring lenders to: Hold additional capital on their balance sheet as a buffer during an economy-wide credit boom; hold additional capital against loans in specific sectors if risks emerge in those sectors; adjust their funding ratios to use more stable sources of funding to avoid the impact of short-term funding shortages, and; restrict high loan-to-value ratio lending in the housing sector.

“They will not be the answer to all problems created by excessive credit cycles,” English said. “But they will certainly help at the margins.” English said he didn't want to “prejudge” the consultation process today.

However, he said the Government is considering formalising the use of these tools to “avoid a strong upswing in asset values and any unsustainable growth in borrowing well in excess of economic growth.” He said since the Global Financial Crisis, the Reserve Bank has laid out new requirements to encourage banks to strengthen their balance sheets, in terms of both capital and liquidity buffers.

“After several years of discussion against the background of an international debate on the same issues, the Government will formalise the policy and ensure the decision making process is transparent,” he said. “As I’ve said, it is intended to help manage excesses in credit cycles, as occurred in the lead up to the Global Financial Crisis."

The Reserve Bank will be taking the proposals to the public for consultation next month.

Comments

On Thursday, February 28th 2013 9:57 am Andy said:

I wonder what the statistics are for consumer finance. To me it would seem logical to stop or curb consumer finance in return for promoting savings. If people had to save up for luxuries rather than putting them on HP or the plastic, balance sheets would improve, there would be less bad debts, and maybe even even up our balance of payments as imports of luxuries would stop in the short term. This would encourage a better savings attitude amongst New Zealanders and promote more fiscal thinking rather than hogging "just because the neighbours have one"!

On Thursday, February 28th 2013 10:05 am Leanne said:

The government should not use Auckland as it's measure for the housing market. Auckland may as well be another country. The provinces are not doing so well. Perhaps the Reserve bank needs to formulate strategies specific to Auckland lending, and apply those solely to the Auckland province.

On Thursday, February 28th 2013 10:22 am Stuart said:

I hope that if there are to be any LVR restrictions, that they are only applied to where the housing market is actually overheating, the obvious one being Auckland. Many/most parts of NZ are far from doing that.

On Thursday, February 28th 2013 5:10 pm Hamish said:

Sounds like a good way to make it harder for first home buyers and cheaper for those people with massive deposits.

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